Tomorrow Investor

Surging Lithium Prices Prompts Tesla Supplier to Charge Higher Rates


As 2022 drew to a close, the price of lithium, the primary component for rechargeable batteries used in electric vehicles (EVs) and other vital devices, increased significantly due to the fact that the mining sector has been unable to keep up with surging demand.

This has resulted in EV companies, including market leader Tesla, looking at the possibility of paying their suppliers more within the new year to ensure a constant supply.

In Tesla’s case, its main supplier amended its current agreement with the company instead of going by its original deal wherein the price of lithium was locked in. The company in question is Piedmont Lithium Inc. which changed the terms of the deal to use a floating mechanism based on the going price of lithium in global markets.

Piedmont also increased the amount of lithium concentrate it supplies to Tesla to 125,000 metric tons beginning in the second half of this year and well into 2025.

A Quick Backgrounder

The agreement between Piedmont and Tesla was formalized back in 2020. At the time, lithium prices were pegged at record lows as the manufacturing sector came to a standstill following the initial onslaught of Covid-19 which shuttered much of the world’s heavy industry. Lithium supplies during this period were also noted to be more than adequate.

Since then, however, the price of lithium has increased by around 1,200% as the manufacturing scene reopened and demand overwhelmed supply. This has resulted in a significant price increase for electric vehicles as EV companies struggled to secure a supply of lithium for their battery works.

Last year, the standard price for a lithium-ion battery pack increased by around 7%, its first notable increase since BloombergNEF began its survey of emergent commodity prices in 2010.

As Tesla was one of the biggest buyers from the lithium mining sector which, in the beginning, was predominantly composed of startups and small players, the company banked on its position to dictate payment terms with its suppliers. 

The company tended to lock in long-term deals, getting supplies at fixed prices. However, the surge in lithium pricing has changed the game all together not only for Tesla, but its competitors, as well.

A Tough Time for Tesla

But the revision of the Piedmont agreement isn’t the only adverse development Tesla currently needs to deal with.

Company shares dropped by around 13.3% by noon of the first trading day of 2023, its biggest drop since Q3-2020. Analysts also reduced their share-price forecasts as Tesla failed to meet expected car deliveries for the fourth quarter of 2022.

Meanwhile, Piedmont’s own share value decreased by 4.2% despite initial gains following the announcement of its revised agreement with Tesla.

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